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Nova Chemicals, Inc. v. Sekisui Plastics Co.

September 3, 2008


The opinion of the court was delivered by: David Stewart Cercone United States District Judge

Electronic Filing


Nova Chemicals, Inc. ("Nova" or "plaintiff"), commenced this action seeking declaratory relief concerning the parties' rights and duties under a license agreement, and more specifically its right to market and sell certain products in what the parties defined as "the Asian market." Through a counterclaim Sekisui Plastics, Co., LTD ("Sekisui" or "defendant"), seeks injunctive relief and restitution for an alleged breach of the agreement, which governed Nova's use of Sekisui's patented and confidential technology and the sale of the resultant products. The breach purportedly occurred when Nova began selling products in the Asian countries seven years after the agreement expired. Presently before the court are cross motions for summary judgment. For the reasons set forth below, plaintiff's motion will be granted and defendant's motion will be denied.

Federal Rule of Civil Procedure 56(c) provides that summary judgment may be granted if, drawing all inferences in favor of the non-moving party, "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Summary judgment may be granted against a party who fails to adduce facts sufficient to establish the existence of any element essential to that party's claim, and upon which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The moving party bears the initial burden of identifying evidence which demonstrates the absence of a genuine issue of material fact. When the movant does not bear the burden of proof on the claim, the movant's initial burden may be met by demonstrating the lack of record evidence to support the opponent's claim. National State Bank v. National Reserve Bank, 979 F.2d 1579, 1582 (3d Cir. 1992). Once that burden has been met, the non-moving party must set forth "specific facts showing that there is a genuine issue for trial," or the factual record will be taken as presented by the moving party and judgment will be entered as a matter of law. Matsushita Electric Industrial Corp. v. Zenith Radio Corp., 475 U.S. 574 (1986) (quoting Fed.R.Civ.P. 56 (a), (e)) (emphasis in Matsushita). An issue is genuine only if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).

In meeting its burden of proof, the "opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. The non-moving party "must present affirmative evidence in order to defeat a properly supported motion" and cannot "simply reassert factually unsupported allegations." Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989). Nor can the opponent "merely rely upon conclusory allegations in [its] pleadings or in memoranda and briefs." Harter v. GAF Corp., 967 F.2d 846 (3d Cir. 1992). Likewise, mere conjecture or speculation by the party resisting summary judgment will not provide a basis upon which to deny the motion. Robertson v. Allied Signal, Inc., 914 F.2d 360, 382-83 n.12 (3d Cir. 1990). If the non-moving party's evidence merely is colorable or lacks sufficient probative force summary judgment must be granted. Anderson, 477 U.S. at 249-50; see also Big Apple BMW, Inc. v. BMW of North America, 974 F.2d 1358, 1362 (3d Cir. 1992), cert. denied, 113 S.Ct. 1262 (1993) (although the court is not permitted to weigh facts or competing inferences, it is no longer required to "turn a blind eye" to the weight of the evidence).

The record as read in the light most favorable to defendant establishes the background set forth below. Sekisui originally entered into the license agreement ("the agreement") with Arco Chemical Company ("ARCO") on December 9, 1982, in Philadelphia, Pennsylvania. Sekisui and ARCO prepared and exchanged multiple drafts of and made numerous revisions to the agreement during its negotiation and drafting. The principal negotiators were Dr. Joseph Verdol on behalf of ARCO and Fumio Saito on behalf of Sekisui. All negotiations were in English with a Japanese translator for the benefit of Sekisui. ARCO prepared the final version in English.

The parties indicated that the agreement would be governed by the laws of Pennsylvania. Upon payment of an initial lump sum the agreement granted ARCO an exclusive license with a limited right to sublicense from January 1, 1983, to January 1, 1986, to use Sekisui's specified patents and technologies in the United States and Canada "to produce, sell and use" the resulting products. Under Paragraphs 5.2 and 5.3 ARCO had a right to exercise an option to extend and expand the license in Sekisui's patents and technologies for a period of up to ten additional years by making an additional lump sum payment and then ongoing royalty payments. ARCO exercised the option by letter dated February 20, 1985. It paid all royalties during the ten year extension. The agreement terminated on February 20, 1995. On or about September 30, 1996, the agreement was assigned to Nova as a part of an asset purchase agreement.

The agreement granted a license to use and sublicense Sekisui's "Piocelan process", which encompassed a pentane-based technology for producing polyethylene/polystyrene foams and polypropylene/polyethylene foams. It included use of Sekisui's patented technology and the confidential trade secrets, know-how and equipment needed to use Sekisui's intellectual property and produce marketable products. Presently, Nova markets products which incorporate the Piocelan technology under the "ARCEL" trade name. Nova began selling ARCEL products in the Asian market in 2002.

The parties dispute whether the license agreement currently prohibits Nova's sales in the Asian market. The dispute is centered on two sections of the agreement. The first is Paragraph 5.4, which provides:

Following the payment by ACC to Sekisui of said money under Paragraph 6.1 (a) (3), an exclusive license with the right to sublicense is automatically granted to ACC during the term of this agreement under all [enumerated Sekisui patents and technologies] to produce, sell and use all PRODUCTS and other resinous materials in the LICENSED TERRITORY. Moreover, ACC and its sublicense shall have the right to sell PRODUCTS and other resinous materials in all countries of the world except in the following [specified Asian countries].

The second is Article XI:

This Agreement shall become effective on the EFFECTIVE DATE and shall remain in full force and effect for a period of ten (10) years from the date of exercise by ACC of the option in Paragraphs 5.2 and 5.3, unless this Agreement is terminated earlier as provided in Paragraph 5.6 or ARTICLE IX. Upon payment of the Lump Sum Payment and Running Royalties due under Paragraph 6.1, ACC shall have a fully paid-up right and license to use and sublicense [the enumerated Sekisui patents and technologies] in any of its United States and/or Canadian plants and to sell PRODUCTS and other resinous materials produced anywhere in the world (subject to Paragraph 5.4).

Nova contends that all provisions of the licence agreement expired in 1995 and that Sekisui is attempting to enforce a right that does not exist under any reasonable interpretation of the agreement. It asserts that the parties did not intend the agreement to govern ARCO's rights to use the technology and sell the resultant products in the Asian countries. Those countries were simply identified as being beyond the affirmative grant of the license and the parties' rights and duties as to those countries were and are controlled by independent sources, namely Sekisui's patent and trade secret rights. In the alternative, even if the sections of the agreement are read to prohibit sales in the enumerated Asian countries, the prohibition does not extend in perpetuity. The agreement comprehensively was tailored so that all of the parties' rights and obligations expired upon its termination. This effect was consistent with the applicable Pennsylvania Law which does not favor an interpretation that creates a perpetual commitment in the absence of a clearly expressed provision that reflects an intent to do so.

Nova contends that the agreement is clear and unequivocal and its provisions reflect the intent of the parties. The agreement is not ambiguous because it is neither susceptible of different constructions, nor capable of being understood in more than one sense. None of its provisions is obscure or has a double meaning. The provisions lead only to the interpretation set forth above and thus, the court has no need to look to extrinsic evidence to interpret the agreement. But even if extrinsic evidence is considered, there is no competent evidence to prove that any prohibition against sales in the Asian market was to be permanent. This is because the duration of the restriction was never discussed during negotiations and ARCO's representatives were not aware of any intent by Sekisui to have any aspect of the agreement extend beyond its termination. Therefore, Nova seeks a declaration that it has no remaining obligations under the agreement.

Sekisui alleges that the exception clause in Paragraph 5.4 prohibits sales in the Asian countries and that prohibition was intended to be permanent. Mr. Stoves, one of ARCO's drafters and negotiators, clearly understood this. In other words, the parties affirmatively intended to prohibit sales in the Asian market and the clause may not be interpreted as simply designating territory that was beyond the scope of the license. Furthermore, the clause was intended to survive the termination of the agreement. It is separated from the section defining ARCO's rights in paragraph 5.4 and thus constitutes an independent provision which is not subject to the termination clause in the first sentence of Article XI. It, therefore, reflects a perpetual prohibition that the parties did not expressly ...

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